Inside the NFL’s Tax-Exempt Status
As a multibillion-dollar business, many Americans have been shocked to learn the NFL enjoys tax-exempt status — sort of. What is the league’s tax status, how much is it worth and what would be the implications of the league giving up (or being stripped of) its tax exemption?
The League’s Status
The National Football League, like several other professional sports organizations, enjoys some tax benefits, one of them being that the NFL League Office is classified as a nonprofit organization.
IRS code that provides tax exemption for “professional football leagues”
Year language was inserted into tax code
What else is covered by the IRS code?
- Business leagues
- Chambers of commerce
- Real-estate boards
- Boards of trade
But the NFL’s tax exemption dates back even further than that. A struggling sports league in 1942, the NFL League Office received tax-exempt nonprofit status from the IRS. That continued until 1966, when as the AFL was making a hard challenge to the NFL for TV contracts, college stars and popularity among regular fans, the two leagues agreed to a merger. In order to avoid running afoul of antitrust laws, the merger had to be approved by Congress. And that meant convincing Louisiana Sen. Russell Long, the chairman of the Senate Finance Committee.
So how did the deal get done? Then-NFL commissioner Pete Rozelle agreed to allow a new franchise team. The location? New Orleans, in Long’s home state of Louisiana.
Not the Whole NFL
Only a small portion of the NFL, the league office, is actually tax-exempt. The teams are still subject to taxes, as are most of the NFL’s operations, through NFL Ventures and NFL Properties.
Functions of the league office
- Writing and revising league rules
- Hiring referees
- Negotiating labor agreements with players
- Conducting player safety research
- Operating youth football programs
- Organizing the NFL draft
- Organizing the Super Bowl
Projected NFL revenue in 2014
What About Other Leagues?
The NFL isn’t the only pro sports league that takes advantage of the IRS rules; it’s just the most lucrative.
NFL, NHL, PGA Tour
Major League Baseball formerly had tax-exempt status but voluntarily gave up the designation back in 2007.
Is This Legal?
The NFL is simply taking advantage of the IRS code pertaining to its operations. It would be difficult to make a case that the league is breaking the law. But that doesn’t mean everyone agrees that the league’s tax-exempt status is truly on the level.
The office acts as a trade organization for the NFL’s member teams and doesn’t engage in business activity. The league office does not receive any income from game tickets or TV contracts, so its tax exemption doesn’t apply to any of the $11 billion profits the league is expected to earn this year.
The anti-NFL argument
The NFL League Office is not a trade organization because it does not advocate on behalf of professional football in general, but rather the NFL itself. The NFL isn’t an open league; after all, you can’t just start a team and join the NFL.
Amount the NFL spent to lobby Congress in 2013
Amount the league spent in 2003
Not only does the NFL have a tax advantage thanks to the IRS, it’s also been the beneficiary of publicly funded stadiums in dozens of cities. Here’s a look at some recent, expensive projects, including the under-construction Vikings’ stadium:
Stadium, Team, Amount publicly financed
Lucas Oil Stadium, Indianapolis Colts, $619,000,000
Vikings Stadium, Minnesota Vikings, $506,000,000
AT&T Stadium, Dallas Cowboys, $444,000,000
Paul Brown Stadium, Cincinnati Bengals, $424,000,000
University of Phoenix Stadium, Arizona Cardinals, $310,000,000
Levi’s Stadium, San Francisco 49ers, $116,000,000
What’s It Worth?
So what would change if the league office were stripped of its tax exemption?
Estimated savings over 10 years if certain leagues were stripped of tax-exempt status
Reported deficit in NFL League Office revenue in 2011
Year-end cash NFL League Office reported in 2012
Several efforts have been made over the years to repeal the NFL’s tax exemption. With recent high-profile domestic violence cases against NFL players and the ongoing controversy over the Washington team’s nickname, those movements seem to be picking up steam.
Several senators have introduced bills in recent months to repeal the league’s protection:
- Cory Booker
- Maria Cantwell
- Tom Coburn
In addition, a Change.org petition to revoke the league’s tax exemption has more than 400,000 signatures.